African Guarantee Fund USD 8.5 Million Partnership Deal with Absa Bank Tanzania to Finance MSMEs

African Guarantee Fund (AGF) and Absa Bank Tanzania Limited have signed a Loan Portfolio Guarantee Agreement worth USD 8.5 million to offer financing to Micro, Small and Medium-sized Enterprises (MSME) in Tanzania.

The Loan Portfolio Guarantee facility shall enable Absa Bank Tanzania to offer support to Micro, Small and Medium-sized Enterprises (MSME) customers, both with existing businesses and start-ups. Priority will be given to businesses owned by women, youth and Micro- SMEs, primarily in agriculture and the agricultural value chain.

The guarantee facility will also be used by Absa Bank Tanzania to support climate-focused businesses, such as businesses involved in energy efficiency, renewable energy, natural resource management and climate insurance.

Speaking at the signing ceremony, Melvin Saprapasen, Head of Business Banking at Absa Bank Tanzania, said, “Youth and women-owned MSMEs face numerous challenges, including a lack of access to cost-effective financing, which is stifling the growth of MSMEs in the country. But through this agreement, we are looking to bridge this financing gap and accelerate the growth of existing MSMEs and start-ups.

In essence, AGF mitigates the inability of MSMEs to provide acceptable collateral by sharing the risks anticipated by Absa. AGF’s commitment under this agreement is to assume up to 75% of every underlying transaction (75% for women-owned businesses and Green Financing and up to 50% for the rest of the businesses), Absa will bear the remaining risk.”

The beneficiaries – Qualifying Borrowers – must be Micro, Small and Medium-sized Enterprises (MSME) eligible for credit facilities (funded and unfunded) from the Guaranteed Party. Those beneficiaries who are to be placed under AGF coverage must be registered and/or licensed MSMEs domiciled in Tanzania and must represent new or incremental businesses only geared towards investments and/or working capital credit facilities designed to encourage their growth.

On his part, Mr. Obedi Laiser, Chief Executive Officer, added, “When fully utilized, this facility will catalyze approximately USD 40 million worth of loans to MSME in the next five years. This initiative is driven by our desire as Absa Bank Tanzania to better align our business with the Government’s commitment to achieving economic diversification by ensuring MSMEs provide the next engine of growth and employment for our economy. This presents a significant opportunity for MSME’s and creates a platform from which Absa Bank can grow its MSME business proposition with a view to empower the country’s growth.”

Commenting on AGF’s part, Mr. Jules Ngankam, the Group Chief Executive Officer reiterated that AGF is steadfast in mitigating the financing gaps in Africa’s SMEs sector. “A strong and vibrant SME sector provides a strong foundation to enhance the standards of living and to reduce poverty. Small and medium-sized enterprises are a key contributing sector in Tanzania’s achievement of her development vision (TDV) as a middle-income economy. While Tanzania’s SME sector contributes to a third of the overall GDP, access to finance remains a key constraint to the sector and this is what our partnership with Absa Bank will address through the guarantee agreement. AGF has also commenced deliberations with Absa for the provision of Capacity Development to support the bank’s SME business through technical assistance.”

Mr. Ngankam further commended Absa Bank’s efforts in responding to the SMEs business needs. “AGF seeks partnerships with institutions that continue to respond to SMEs’ specific needs and trends. Through the Affirmative Finance Action for Women in Africa – AFAWA Guarantee for Growth, we will boost Absa’s women SME portfolio whereas through our green guarantee facility, the bank will lend more to green SMEs.”

In 2020, African Guarantee Fund signed a Loan Individual Guarantee agreement with Absa Bank Tanzania. The partnership facilitated financing an SME in the ICT sector whose impact included the promotion of safer tourism, overall security and emergency tourism through surveillance and traffic management.